Funding for our Employees

Other post-employment benefits (OPEB) are the benefits that an employee will begin to receive at the start of retirement. This does not include pension benefits paid to the retired employee.
Other Post-Employment Benefits (OPEB) – Investopediahttps://www.investopedia.com/terms/o/opeb.asp

Dear Lynnfield Residents,

Lynnfield has gone through many changes over the years and through it all, our town employees have continually provided us many services, while maintaining our lovely town and educating our children. As we look towards the future, we will be asked to vote on potential building and maintenance projects. As part of this discussion we should consider our obligation to our employees and understand how they could contribute and affect our budgets moving forward.

For a closer look at how our employee needs and our payroll has changed over the past 10 years, the following chart has been provided below. This information is based on Massachusetts DOR (Department Of Revenue) information. During this time frame, the number of employees has increased approximately 11%, while our payroll has increased 52%. Since 2013, with the opening of Market Street, we have increased the number of employees by almost 3%, while our payroll has increased approximately 15%.

Our obligation to meet our employees’ payroll will continue through their retirement. Moving forward, OPEB (Other Pension Employee Benefits) should become more important in our budgetary planning. In S&P’s Global Ratings Report, dated March 31, 2017, the following statement was made: “Lynnfield’s large pension and OPEB obligation, without a plan in place we think will sufficiently address the obligation, is a credit weakness. Lynnfield’s combined required pension and actual OPEB contribution totaled 7.9% of total governmental fund expenditures in fiscal 2016. Of that amount, 4.3% represented required contributions to pension obligations and 3.5% represented OPEB payments. The town made its full annual required pension contribution in fiscal 2016. The funded ratio of the largest pension plan is 51.8%.”

The S&P Ratings Report went on to say, “Lynnfield also provides OPEB to retirees. As of July 1, 2015, the most recent actuarial valuation, it reported a $69.8 million OPEB liability, an increase from $56.3 million as of July 1, 2013. Lynnfield has traditionally funded OPEB through pay-as-you-go financing. It paid $1.8 million, or 3.5% of expenditures, which was 23% of the annual required contribution, in fiscal 2016. The OPEB Trust Fund has a current balance of $600,000; officials plan to add an additional $300,000 in fiscal 2018. We note this is not enough to address the OPEB plan fully based on the growth rate of liabilities. In our opinion, large growing pension and OPEB liabilities could add budgetary pressure.” The report went on the say a negative factor is “…but significant medium-term debt plans and a large pension and other postemployment benefit (OPEB) obligation and the lack of a plan to sufficiently address the obligation;” Therefore the town should be very diligent when considering any new debt.

Today, S&P Bond Rating of Lynnfield is AA+, with the highest bond rating being AAA. The report concludes: “The stable outlook reflects S&P Global Ratings’ opinion of Lynnfield’s, at least, strong budgetary flexibility and very strong economy, supported by its access to the Boston MSA. We believe the town’s very strong liquidity, with limited capital needs, provides additional rating strength. Therefore, we do not expect to change the rating over the next two years.”

I hope you have found this information useful. I would like to thank all of our town employees and volunteers that contribute to our town and make us proud to call Lynnfield our home.